“Monetary policy is not a panacea,”
Federal
Reserve Chairman Ben Bernanke says Wednesday in testimony before a House panel. Ap

The Federal Reserve said the U.S. economy expanded at a “modest to moderate pace” in January and early February, fueled by manufacturers, including automakers.

“Manufacturing continued to expand at a steady pace across the nation,” with “several districts indicating gains in capital spending, especially in auto-related industries,” the Fed said Wednesday in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy.

In congressional testimony Wednesday in Washington, Fed Chairman Ben Bernanke affirmed that interest rates are likely to stay low at least through late 2014 without offering any indication that further monetary easing is under consideration. While describing “positive developments” in the labor market, Bernanke said it “remains far from normal.” In the first day of his semiannual monetary policy report to Congress, he said a recent rise in gasoline prices “is likely to push up inflation temporarily” and reduce consumer purchasing power.

Stocks opened higher Wednesday after the government said the economy grew faster at the end of last year than previously estimated — a 3 percent annual rate, the best reading since the spring of 2010. But they erased gains as Benanke’s comments damped speculation of more easing.

U.S. Treasury debt plunged on speculation that the Fed wouldn’t enter the market again. The yield on the 10-year Treasury note spiked to 2.02 percent during Bernanke’s remarks, from 1.94 percent minutes earlier. It fell back to 1.97 percent. Bond yields rise as their prices fall.

The price of gold plunged $77 per ounce, the biggest one-day drop since September, as traders dialed back their expectations that the dollar would be weakened by another round of economic stimulus from the Fed. Silver also fell sharply.

“Monetary policy is not a panacea,” Bernanke said in response to a question from lawmakers. “It can help offset cyclical fluctuations and financial crises like we’ve had, but the long-term health of the economy depends mostly on decisions taken by the Congress and the administration.”

At the same time, Bernanke indicated that recent signs of strength in the world’s largest economy haven’t changed his view that low rates are needed to keep the two-year expansion going and further reduce the unemployment rate, which dropped to a three-year low of 8.3 percent in January.

Here are more details of developments Wednesday:

Beige Book

The U.S. economy started the year off well with busier factories, higher retail sales, more jobs and growth in home sales. The Federal Reserve said all 12 of its banking districts reported some level of growth in January and the first half of February.

The central bank cited the districts of Cleveland, Chicago, Kansas City, Dallas and San Francisco as reporting moderate growth. In its January survey, the Fed said only Dallas and San Francisco saw a moderate expansion.

The report offers anecdotal evidence that will help central bankers weigh developments in an economy where unemployment is projected to remain above 8 percent through the end of the year.